Micro-Cap Movers and Shakers From Tosh Lines, 9th February 2020

Well, what a couple of weeks it’s been. The FTSE AIM All-Share caught the Coronavirus, the usual unscrupulous characters pumped penny shares to profit off the back of it, and I took all of this week to recover from last weekend’s bender.

Which saw me leave my house at 11 am on Saturday morning and return at 7.30 am on Monday morning. You gotta love getting off the train still drunk just as the commuters are getting on it to go to their mundane office jobs. Bless em.

Looking back at the month of January, it was a mixed bag personally, and reading some of the top Traders comments on social media, it seems they felt the same. Some winners, some losers and a lot of huffing and puffing. That said, there were some decent spikers if you caught them early enough:

TICKER: KAT spiked 338% from a low of 0.819p to a high of 3.59p.

TICKER: NCYT (the saviour of the Coronavirus) soared 303% from a low of 13p to a high of 52.35p.

TICKER: GGP jumped 112% from a low of 1.785p to a high of 3.78p.

TICKER: DPP rose 63% from a low of 4.75p to a high of 7.75p.

So far in February, TICKER: BOIL has been the biggest mover, surging 1332% from a low of 0.04p to a high of 0.573p. A nice thirteen bagger if anyone bought early and held, well done if you did. The catalyst to trade this being, a huge breakout in volume during the last few sessions, a breakout above the 8EMA and breaking above previous resistance at 0.20p. The signs are it has finally run out of steam having spiked to 0.573p but closing at 0.39p on Friday. You never know though; it might spike again!

Having failed to break past its previous 2019 high/resistance (974.88), the FTSE AIM All-share took a breather and dropped back to the 948 area before bouncing back up. Eyes on it this month to see if it has a second crack at that key resistance area. Who knows though, the markets don’t like worldwide disasters, and the Coronavirus doesn’t look like it’s going away anytime soon.

And now for the second interview in the ‘Market Wizards’ book I’ve been reading. Bruce Kovner, a dude who started trading with $3,000 in the 1970s and turned it into $billions. I’m pretty sure my trading career is on a similar path to his, I am almost a Billionaire 😊

So how did he achieve it?

He started by doing something which not a lot of new Traders do, prior to trading, he immersed himself in his studies, and for a year, he studied the markets and related economic theory. He read everything he could get his hands on and subsequently found his edge in the interest rate markets.

As a result of entering the world of trading with an education, he had instant success. He turned $3,000 into $4,000 within his first two trades. And his third trade he turned $4,000 into $22,000 (he took on huge risk and was highly leveraged). The trade actually reached $45,000 before he made the mistake of failing to understand the market, being complacent, thinking it was too easy, having a total disregard for risk, and then selling for $22,000 as the trade had gone against him. Whilst it was a good trade (it was six-fold his original stake), he felt sick to the stomach and didn’t eat for days. Strangely, he felt he had blown it as a Trader.

But more importantly, it made him realise the market could take his money away from him just as fast as it gave it to him. In hindsight, he viewed it as his ‘going bust’ trade, as psychologically that is how it made him feel. He didn’t trade for a month after this event, despite winning and making a huge profit.

As a result of the above event, one of the first trading rules he created was – don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand. And since that point in time, whenever he hasn’t understood what is happening with ones of his trades, he closed his position. He played it safe, which is actually great advice.

After this initial success, he decided to get a full-time job as a Trader, and found a position working for Michael Marcus (the chap whose interview I covered on 17 Jan 2020). Michael taught him that if he applied himself and became disciplined, then great things could happen. He also taught him that you had to be willing to make mistakes regularly and that there is nothing wrong with it. Again, that is sound advice for new Traders out there, who all too often, become despondent when they lose a handful of trades, and they quit trading.

From that point onwards, and whilst the interview doesn’t cover exactly how he made his billions, Bruce’s career took off, and that was largely due to having Michael as his mentor and teaching him good discipline amongst other things. And I believe that is a sound piece of advice for new Traders too. If you are struggling, try and find a mentor who is willing to help you. When I first started, I worked out who the best Traders were on social media, I befriended them, learned from them, and that helped me to eventually become a full-time profitable Trader. So, what have you got to lose from doing the same?

When asked what made him different to the average Trader, Bruce replied that he can imagine configurations of the world different from today and really believe it can happen, e.g. he could imagine soybean prices doubling when everybody else couldn’t (he would be right of course). He can also stay rational and disciplined under pressure, which a lot of Traders can’t do.

As the years passed and he became more successful, Bruce became a mentor himself. He said the important traits which successful trainee Traders had, were that they were strong, independent and contrary in the extreme. They were willing to take positions others weren’t, and they were disciplined to take the right position sizes.

He believes that greedy Trader’s always blow up their accounts, as they trade too big a position size. So obviously when it goes against them, it wipes them out. A good lesson there, to only use a small percentage of your account per trade, otherwise you risk losing the lot when a single trade goes wrong.

Bruce almost always trades on the market view. He uses technical analysis but he can’t hold a position unless he understands why the market should move in the direction, he wants it to move. Such as why would the price of soybean double, it has to have a fundamental reason behind it, and if it doesn’t, he won’t trade it.

He believes, there is a great deal of hype attached to technical analysis. It tracks the past, but it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some Traders may say about the future activity of other Traders. The less explanation there is for a price move occurring the better it looks. The more it is observed by speculators the more prone you are to have false signals. The more a market is the product of non-speculative activity the greater the significance of technical breakouts.

When he enters a trade, he has a pre-determined stop. His position size is determined by the stop, he risks no more than 1% of his portfolio per trade. The stop is determined on a technical basis. It’s always beyond a technical barrier as the market shouldn’t go there if he is right. It’s at a point that isn’t easily reached. That maximises his chances of not getting stopped out while maintaining good money management discipline.

The last pieces of advice he gave to novice Traders is – risk management is the most important thing to understand. Whatever you think your position size should be, halve it. Novice traders usually trade 3-5 times too big. And finally, don’t personalise the market, it doesn’t care if you make money or not. Focus on the process. If you don’t work really hard it is extremely unlikely you will become a good Trader.

Overall, it was another interesting read, a lot of which I could relate to (ok not the billionaire bit). Hopefully, there are some useful snippets of information in the above summary for others too. I am already seeing some common themes from these interviews; they seem to be saying the same things.

 

Author: Tosh Lines

I am a full-time trader who focuses on micro-caps, a freelance writer, and when I am not staring at the screens I am most likely climbing 3 mountains in 1 day for charity 

Please note: I have a new Twitter account @_TradeTheTicker please give me a follow!


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